Ch. 28 Do Your Homework, Macroeconomincs Cengage
Suppose the government wants to reduce this type of unemployment. Which of the following policies would help achieve this goal? Check all that apply. Improving a widely used job-search website so that it matches workers to job vacancies more effectively Establishing government-run employment agencies to connect unemployed workers to job vacancies Offering recipients of unemployment insurance benefits a cash bonus if they find a new job within a specified number of weeks Answer: Check all 3
Unemployment benefits tend to reduce the job-search efforts of the unemployed. Workers receiving unemployment insurance generally take longer to find new work, contributing to frictional unemployment in the interim. Extending or increasing unemployment benefits will contribute to additional frictional unemployment. Note that unemployment insurance is not necessarily bad. Preventing some hardship associated with unemployment may be well worth the cost of some additional frictional unemployment. Reducing the average amount of time spent searching for a job would lower an economy's frictional unemployment and, by extension, its natural rate of unemployment. Job-search websites can connect unemployed workers to firms with job vacancies. A site that matches workers to vacancies more effectively would reduce the amount of time that workers spend looking for jobs and allow employers to fill vacancies more quickly. Government-run employment agencies connect unemployed workers to firms in need of additional labor. Employment bonuses given to unemployed workers who are receiving unemployment insurance benefits would give workers an incentive to find work more quickly. This would reduce frictional unemployment by decreasing the time the unemployed take to find work
Unemployment RateUnemployment Rate = = 100×Number of Unemployed Workers/Labor Force 50%
Explanation: The BLS defines the unemployment rate as the fraction of the labor force that is unemployed. Shen, Valerie, Frances, and Dmitri are part of the labor force because they are either working or searching for a job. The BLS considers a person to be unemployed if he or she is in the adult population, did not work for pay in the previous week, and has been actively seeking work during the preceding 4 weeks. By this definition, the BLS classifies Valerie and Frances as unemployed. Since the size of the labor force in this small economy is four people, and since two of them are unemployed, the unemployment rate is computed as follows. Unemployment RateUnemployment Rate = = 100×2/4 100×24 = 50%
Suppose a senator considers introducing a bill to legislate a minimum hourly wage of $15.00. Which of the following statements are true? Check all that apply. In the absence of price controls, a surplus puts downward pressure on wages until they fall to the equilibrium. ✓ If the minimum wage is set at $15.00, the market will not reach equilibrium. ✓ In this labor market, a minimum wage of $11.50 would be binding. Binding minimum wages cause structural unemployment. ✓
Explanation: If the minimum wage is $15.00, employers will attract more workers than they are willing to hire. In the absence of price controls, this causes employers to lower the wage until the quantity of labor supplied is equal to the quantity they demand (this occurs at $12). That is, a surplus puts downward pressure on wages. If a minimum wage is set above the market equilibrium wage, however, the market cannot reach equilibrium; thus the minimum wage is considered binding. If the minimum wage were instead set at $11.50 and employers initially paid that wage, a shortage of workers willing to supply labor would put upward pressure on wages. Because there is no ceiling on wages, the market would be able to reach equilibrium; therefore, a minimum wage of $11.50 is not binding. A binding minimum wage will contribute to a persistent surplus of labor in this market, generating structural unemployment. Structural unemployment is unemployment that arises from a mismatch between the skills of the existing labor force and those required to perform available jobs. One source of structural unemployment is minimum wage legislation, which holds wages above the productivity levels of less skilled workers, who are thus ill-suited to existing jobs. In this scenario, the quantity of labor supplied will continue to exceed the quantity of labor demanded as long as the minimum wage remains above the market equilibrium wage. The resulting surplus of labor creates a pool of unemployed workers—people who would like to work at the prevailing minimum wage, but who cannot find a job.
The following graph shows the labor market in a state in the South. The legislature in this state passes strong "right-to-work" laws that make it very difficult for unions to organize workers, so the wage is always equal to the market-clearing value. Except for this difference in legislation, the two states are very similar. The initial position of the graph corresponds to the initial labor market condition in the southern state before the labor union negotiated the new, higher wage for workers in the northern state. Suppose that after the wage goes up in the northern state, some workers in the northern state lose their jobs and decide to move to the southern state Adjust the graph to show what happens to employment and wages in the southern state. Supply curve shifts to right (increases) Demand curve does not move.
Explanation: The shortage of jobs in the northern state causes the population in the southern state to increase as people move there in search of jobs. An increase in population in the southern state shifts the supply curve to the right. This leads to an increase in the quantity of labor there and a decrease in the equilibrium wage
Which of the following statements correctly describe discouraged workers? (If none of the choices apply, leave all of the checkboxes blank.) Check all that apply. They have not looked for a job in 4 weeks (or longer), but they would like a job and are available for work. They have given up on looking for a job. They are counted as part of the labor force by the Bureau of Labor Statistics. They are dissatisfied with their current jobs and are considering quitting. Check: They have not looked for a job in 4 weeks (or longer), but they would like a job and are available for work. They have given up on looking for a job
Explanation: Any jobless person who has not looked for work in the past 4 weeks is not in the labor force according to the Bureau of Labor Statistics (BLS). Some of these jobless people who are not in the labor force indicate that they'd like to have a job and are available for work. The BLS classifies such people as marginally attached workers. Discouraged workers are marginally attached workers who give a job-market-related reason for giving up on their job search. Typically, discouraged workers give up on their search because they feel that there are no current opportunities for them in the labor market
Wage= 3.00. Labor Demanded=1050 Labor supplied= 150 Complete the following table with the quantity of labor supplied and demanded if the wage is set at $15.00. Then indicate whether this wage will result in a shortage or a surplus Wage= 15 Labor Demanded= 450 Labor Supplied= 750 Surplus
Explanation: Enter $15.00 into the box marked Wage to the right of the graph. At this wage, firms demand 450,000 workers, and 750,000 workers will want to work. Therefore, there is a surplus of 300,000 workers
Suppose the world price of cotton rises substantially. The demand for labor among cotton-producing firms in Texas will ***increase*** . The demand for labor among textile-producing firms in South Carolina, for which cotton is an input, will **decrease*** . The temporary unemployment resulting from such sectoral shifts in the economy is best described as ***frictional *** unemployment.
Explanation: Frictional unemployment often results from changes in the demand for labor among firms. When the world price of cotton rises, cotton-producing firms will find it more profitable to produce cotton. As cotton-producing firms increase production, the demand for labor with which to produce cotton increases. Job opportunities in Texas expand. For textile-producing firms, the increase in the world price of cotton increases production costs. As textile-producing firms decrease production, the demand for labor in South Carolina decreases. Job opportunities in South Carolina contract. Workers laid off in one sector will take time to find new positions in an expanding sector. These types of sectoral shifts occur continuously in a dynamic economy, so there will always be some level of fr
Why might some firms voluntarily pay workers a wage above the market equilibrium, even in the presence of surplus labor? Check all that apply. Higher wages attract a more competent pool of workers. ✓ Paying higher wages encourages workers to be more productive. ✓ Paying higher wages tends to reduce the average experience level of a firm's workers. Paying higher wages can reduce a firm's training costs. ✓
Explanation: Paying above-market wages may be profitable if the higher wages increase the efficiency of the firm's workers (hence the term efficiency wages). Higher wages can enhance worker productivity in several ways. For example, healthier workers tend to be more productive than less healthy workers. Also, more highly paid workers typically eat more nutritiously then less well paid workers, particularly in less developed countries, where a nutritious diet may be hard to obtain at a market wage. Firms thus have an incentive to pay high wages to maintain a healthy and productive work force. Paying higher wages can also reduce worker turnover. Fewer workers will choose to explore other labor opportunities when a firm pays wages in excess of the prevailing market rate. Since new workers must be trained, the reduction in worker turnover can reduce the firm's training costs. By encouraging workers to stick around, the higher wages cause the experience level of the firm's workforce to rise, enhancing productivity. Higher wages also attract a more qualified pool of job applicants. If the firm were to pay prevailing market wages, more qualified workers might choose to steer clear of the firm in favor of other companies offering higher-paying positions for which they are qualified. Finally, higher wages may induce greater worker effort. In some firms, the costs of monitoring worker performance are quite high. Therefore, to deter shirking, a firm may decide to pay wages above the market equilibrium. The higher wages incentivize workers to work hard, since the loss of a job might mean being forced to settle for less-lucrative employment elsewhere
Cho is a real estate agent. House sales in her area have declined because the region has been going through a recession. She has no clients and is currently looking for a new full-time job. *Cylical* Yvette just moved with her husband to Portland, Oregon. She's looking for a job as a paralegal. **Frictional** Sean left his job as a plumber when his wife took a position in another region. The quantity of plumbing services demanded is considerably lower in the new region, in part because of high union-negotiated wages. He would like to work at the high union wage but remains unemployed due to a lack of plumbing jobs **Structural**
Explanation: Structural unemployment arises from a mismatch between the jobs available in some labor markets and the skills of workers. One cause of structural unemployment is institutional factors such as union negotiation, which holds wages above the marginal productivity of less skilled workers, limiting their employment opportunities. Frictional unemployment occurs because job seekers and employers need time to find one another. Therefore, Yvette is considered to be frictionally unemployed. This kind of unemployment is usually brief. Cyclical unemployment is the form of unemployment associated with business cycles. This kind of unemployment rises during recessions and falls during expansions. Because Cho lost her job due to the recession, she would generally be considered to be cyclically unemployed
Shen is a 24-year-old professional tennis player. When he's not competing, he works as a coach at a local tennis club. Employed Valerie is a 36-year-old autoworker who was just laid off by her employer. She is trying to find any kind of job to help make ends meet. Unemployed Antonio is a 42-year-old accountant who has been out of work for almost a year. He became so discouraged that he gave up on his job search a couple of months ago. Not in the labor force Frances is a 31-year-old science teacher who taught at West Valley Middle School last year. Due to budget cuts, she was laid off at the end of the school year. It's the summer now, and after a few weeks of vacation with her family, she is looking for a part-time job as a tutor. Unemployed Dmitri is a 20-year-old American Studies major at the University of Tennessee. It's summer now, and he is working as a lifeguard in Mobile, Alabama. Employed Caroline is a 10-year-old student at East Valley Middle School. She babysits her younger brother and does other chores, so her parents give her an allowance of $25 per week. Not in the adult population
Explanation: The BLS considers a person to be unemployed if he or she is in the adult population, did not work for pay in the previous week, and has actively looked for work during the preceding 4 weeks. By this definition, the BLS classifies Valerie and Frances as unemployed. Anyone in the adult population who worked for pay in the last week, even if unsatisfied with his or her job, is considered employed. By this definition, the BLS classifies Shen and Dmitri as employed. Because Antonio is not actively seeking employment, he is not considered part of the labor force. Note that not being in the labor force is different from being unemployed. Once people leave the labor force, they are not counted when calculating the unemployment rate. Because Caroline is under the age of 16, she is not considered part of the adult population
Labor Force Participation RateLabor Force Participation Rate = 100×Number in Labor Force/Adult Population 80%
Explanation: The BLS defines the labor force participation rate as the fraction of the adult population that is in the labor force—that is, those who are employed or else unemployed and actively searching for work. By this definition, Shen, Valerie, Frances, and Dmitri are part of the labor force because they are either working or searching for a job. In contrast, because Antonio is not actively seeking employment, he is not considered part of the labor force. And because Caroline is under the age of 16, she is not considered part of the adult population, and is therefore not part of the labor force. Because the adult population in this small economy is five people, and because four of them are in the labor force, the labor force participation rate is 45=80%45=80%. Labor Force Participation RateLabor Force Participation Rate = = 100×4/5 100×45 = = 80
Which of the following groups are better off as a result of the union action in the northern state? Check all that apply. Workers in the northern state employed at the union wage ✓ Workers who find new jobs in the southern state The original workers in the southern state All workers in the northern state
Explanation: The only group that benefits from the union-negotiated wage of $10.00 is the union workers in the northern state who retain their jobs after the wage increase. Because the quantity of workers willing to supply labor is greater than the quantity of labor firms are willing to hire at the union wage, some workers in the northern state will lose their jobs. As some of these workers move to the southern state to find jobs, this puts downward pressure on southern wages, making both the original southern workers and the workers who came from the North worse off. The employers in the northern state are also made worse off as they now have to pay higher wages and have fewer employees
Civilian Population Employed Unemployed Discouraged (Persons 16 years old and over) (Persons) (Persons) (Persons) 258,066,000 155,604,000 6,197,000 434,000 Offical Uneployment Rate= 3.83 U-4 Measure of Labor Underutilization= 4.09 If the Bureau of Labor Statistics were to include discouraged workers in the official unemployment rate, the reported unemployment rate would **increase** .
Explanation: The unemployment rate is the number of unemployed persons divided by the labor force. The labor force is the sum of employed and unemployed workers; in this case, the labor force is (155,604,000+6,197,000)=161,801,000 155,604,000+ 6,197,000=161,801,000. Therefore, the unemployment rate is 6,197,000/161,801,000×100%=3.83% . The U-4 measure of labor underutilization adds discouraged workers to the ranks of the unemployed (and, thus, to the labor force): U-4U-4 = = 100×6,197,000+434,000/ 161,801,000+434,000 = 4.09% If discouraged workers were included in the official unemployment rate, the reported unemployment rate would rise. Similarly, excluding discouraged workers from the official measure of unemployment may mask the true extent of underemployment in the economy.
Unemployment Type Rate (Percent) Frictional= 3.6 Cyclical=0.0 Structural=1.1 Total unemployment= 4.7 True or false: This economy is currently at its natural rate of unemployment. TRUE
Explanation: Total unemployment is the sum of frictional, structural, and cyclical unemployment. If there is no cyclical unemployment, the economy is at its natural rate of unemployment, equal to the sum of frictional and structural unemployment. In this case, because cyclical unemployment is 0.0%, the economy is at its natural rate of unemployment
Consider two states that adopt different laws concerning labor unions. The following graph shows the labor market in a state in the North. Initially, the market-clearing wage there is $8.00 per hour. Suppose that the legislature in this northern state passes laws that make it easy for workers to join a union. Through collective bargaining, the union negotiates a wage of $10.00 per hour Enter $10.00 into the box labeled Wage on the previous graph. At the union wage, **600,000** union workers will be employed
Explanation: You can read from the labor demand curve that, at a wage of $10.00, firms demand 600,000 workers, despite the fact that 1,000,000 workers are willing to supply labor. Thus, 600,000 workers find employment at this wage rate
